Part 1 | As Tuition and Fees Rise, More Students Take out High-Interest Loans

April 28, 2008

For release April 30 and thereafter (845 words)

By Andrea NealOn the eve of a critical meeting to finalize tuition for the 2008-09 school year, the Purdue University newspaper posed this challenge to its board of trustees: “Give students a break.”

“It's easy to ask students to give the extra money in the form of tuition,” the Purdue Exponent said, “and for now, students and their families are finding ways — scholarships, loans, etc. — to pay. But the trend can't continue indefinitely. If college cost increases continue to exceed inflation rates, eventually families won't be able to pay for college.”

A similar appeal could be made at Indiana’s other four-year public universities, which have averaged 7 percent tuition increases in recent years. That’s double the rate of inflation. By virtually any standard – except perhaps the universities’ themselves – it’s been too much, too fast.

Tuition hikes for incoming freshmen at Purdue’s West Lafayette campus have set the pace, jumping from $3,872 in 2000-01 to $7,750 in 2008-09. Every 10 years, tuition doubles in Indiana. No other sector of the economy has experienced such inflation. Not health care. Not energy. Certainly not personal income.

And don’t forget room, board and textbooks, which place the average cost of a year at public college in the $14,000-$16,000 range.

Students are suffering the effects. Eighty percent of them work to pay bills, and they’re working an average of 30 hours weekly, according to the Indiana Commission for Higher Education. They are borrowing more than ever and graduating with higher debt loads, an average of $17,250 for graduates of Indiana’s four-year public colleges.

An even more worrisome trend: A growing portion of their debt is privately financed at interest rates similar to credit cards. At least 10 percent of students at Indiana University and 9 percent at Purdue receive private loans. A $20,000 loan, at 8.5 percent, would add $11,000 in interest to a student’s education if paid over 10 years. That’s a hidden cost students may not even realize.

“The cost of attending these institutions is getting so high it’s beyond what students can pony up,” says Jeff Spalding, senior associate commissioner at the Indiana Commission for Higher Education.

Some of the reasons for rising costs are predictable: faculty salaries and health care premiums, energy costs, the collegiate "arms race" to have the best faculty and programs and the inflationary effects of financial aid.

Universities are labor intensive. Personnel-related costs make up 75 percent of university budgets. “Higher education is experiencing escalating costs for health care, energy and faculty salaries at rates higher than the Consumer Price Index,” notes an Indiana State University spokesman.

At the same time, state support of colleges has been dropping. In the 1970s, students paid about a third of the cost of their education and state taxpayers covered two-thirds. Now it’s about 50-50.

These factors are not unique to Indiana. Yet there’s data to suggest Indiana’s affordability crisis is more serious than elsewhere.

During the 2007-08 school year, Indiana’s average tuition and fees for public four-year schools ranked fifth highest among 13 middle region states, according to The College Board. The only ones higher were Illinois, Michigan, Minnesota and Ohio. Nationally, Indiana ranked 17th. In short, it costs more to go to college in Indiana than in 33 other states.

Room-and-board fees in Indiana also tilt higher. All five of our four-year residential universities charge more for lodging and dining than do the University of Minnesota, University of Kentucky and Illinois State, to name just a few.

Two additional factors appear to be pushing up costs here. For one, our universities like to build and our legislators have been reluctant to stop them. There is no statewide plan for prioritizing capital construction at public universities. As a result, lots of good ideas get treated as priorities. Secondly, there is little oversight — beyond cursory review by trustees — over non-academic fees, room-and-board charges. Neither the legislature not the commission has a role in setting these fees. So what’s to keep universities from raising them? Not much, other than market pressure and self-restraint.

Because demand is up for higher education in Indiana, market pressure is minimal. Over the past six years, 65,000 students have been added to the system. This year, for the first time, IU received so many applications that it had to stop accepting them on April 1. The school’s waiting list is twice as long as usual. It’s the classic example of price inelasticity. Because college education is seen as essential, demand doesn’t change much as prices rise.

If nothing else persuades colleges to rein in spending, students’ growing reliance on private loans should. The Purdue Exponent’s April 10 editorial gave voice to a concern shared by college kids across Indiana and the country: The price of a college education can’t keep rising at the current pace.

On April 11, the Purdue board did give students a break, in relative terms. It approved a 4.5 percent increase in tuition and fees, standard for Indiana colleges for the coming year. That’s higher than inflation still, but thankfully better than 7 percent.

Andrea Neal is an adjunct scholar of the Indiana Policy Review Foundation.

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